John Wallace accused of malfeasance

January 18, 2016

John WallaceBy KAREN VELIE

Former South San Luis Obispo County Sanitation District administrator John Wallace is accused of extortion and conflicts of interest in an investigative report that was made public Sunday. The investigation by Knudson and Associates recommends the district board take the information to law enforcement for possible prosecution.

The sanitation district provides sewer services to about 38,000 customers in Arroyo Grande, Grover Beach and the unincorporated town of Oceano. John Wallace is the owner and president of the Wallace Group, a private engineering consulting firm located in San Luis Obispo.

In 2009, two employees from the sanitation district, Scott Mascolo and Devina Douglas, reported misuse of public funds and problems with the plant complying with safety and health requirements to several regulatory agencies and CalCoastNews. Douglas and Mascolo were eventually terminated leading both to file whistle-blower lawsuits.

Nevertheless, multiple public agencies continued to contract with Wallace and his friend and attorney for the sanitation district Michael Seitz. Sharon Seitz, the wife of Michael Seitz, was the director of the Wallace Group’s human resources department.

While Sanitation district legal counsel Michael Seitz was bringing in large paychecks for his work on the Mascolo and Douglas’ whistle-bower lawsuits, Sharon Seitz was billing the sanitation district for her research on Douglas and Mascolo’s claims.

During interviews with Carl Knudson, Seitz claimed his wife only worked for the Wallace Group for eight months while Wallace claimed she worked for him for two to three years. Both Wallace and Seitz financially benefited from the ongoing legal battles, which rate payers funded.

According to Knudson, the practice of rewarding Seitz and Wallace for their incompetence is a potential conflict of interest in violation of the 1999 “Sarbanes-Oxley” law.

The Knudson report details several instances where Wallace attempted to use or used his public office to financially enrich his company.

For example, in 2009, Wallace threatened to close the state parks dump station in Oceano if the state did not pay Wallace Group $300,000 for engineering plans for a new discharge site. Wallace claimed the state facility was leaking Formaldehyde into the sewage plant. A claim that was later proven untrue.

State Parks recreation specialist Dena Bellman contacted former Grover Beach Councilman Bill Nichols and asked to meet with him regarding the alleged extortion attempt. Nichols arrived at their meeting with Wallace who allegedly smirked at the state employee, according to the report. This is one of the incidents of malfeasance Knudson recommends law enforcement investigate.

For the past seven years, multiple business owners have voiced concerns that Wallace was attempting to use his position as a contracted engineer for the Arroyo Grande Public Works Department. His job was to review and approve proposed project engineering plans. Several business owners said Wallace offered to fast track their projects if the Wallace Group, at a much higher than standard rate, was hired as the developer’s engineer.

The sanitation district board is comprised of three members, one from Arroyo Grande, Oceano and Grover Beach. Former Arroyo Grande mayor Tony Ferrara and Nichols regularly battled against former Oceano board members including Jim Hill and Lori Angelo, who questioned spending and conflicts of interest allegations made by Douglas and Moscolo and published exclusively by CalCoastNews.

In 2011, the San Luis Obispo County Grand Jury validated accusations that Wallace had been funneling millions of dollars to his private engineering company without proper oversight. Wallace, Ferrara and Nichols said the Grand Jury was wrong.

According to the Knudson report, under Wallace’s leadership expenses substantially exceeded revenues while Wallace Group’s income from the sanitation district swelled. Wallace regularly assigned district bookkeeping and financial work to the Wallace Group even though plant employees could have performed the work at a much lower cost.

“The trend in billings by the Wallace Group grew steady from $3,600 and 81 hours a month in 1999 to over 600 hours and $70,000 per month by the end of 2010,” according to the report.

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In addition, the district’s financial reports did not match other financials. Every year, from 2008 through 2012, the district’s “QuickBooks accounting data for revenue and expenses was substantially lower than data listed on the audited financial statements,” according to the report.

In 2013, Grover Beach mayor Debbie Peterson requested a forensic audit of the district. Amid the allegations of mismanagement, Wallace announced his retirement in Feb. 2013.

On May 6, the district voted unanimously to hire Knudson to do an investigation. Two weeks later, Seitz resigned.

Under Wallace, the district regularly exceeded its more than $6 million per year budget and ran at a deficit. Currently, the district is running at less than 50 percent of its budget, with overages being placed in a reserve account.

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Carl Knudson has worked for more than 40 years as a fraud investigator. As an IRS special agent, Knudson investigated drug trafficking cases which were eventually chronicled in two books, Washed in Gold and Dark Alliance. Knudson has testified as a Certified Fraud expert in more than 50 federal and state trials and proceedings.

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On June 14, 2011 T=the Arroyo Grande City Council reviewed the Grand Jury Investigation of the Sanitation District. Only Tim Brown questioned the District. Caren Ray, Tony Ferrara, Joe Costello, and Jim Guthrie pooh poohed the Grand Jury report, giving the Sanitation District a clean report.

Caren Ray said “I wanna refocus a little bit,” and referred to Supervisor Adam Hill who counseled, “The Grand Jury is not … the truth.” Ray said, “There’s not a one of us here on this Council who has more integrity than any I can think of. We all come up here with the utmost integrity. The purpose and findings of the Grand Jury… is a perception. What are we going to do to make sure this public perception is being taken care of? If we were to accept the Grand Jury report, which I do not do, the recommendations are to go back and do what has already been put in process.The Grand Jury report was written colloquially, with unprofessional finger pointing. It’s all being taken care of, assuming the Grand Jury report is correct.This report was in error … and this will restore public confidence. The essential problem is perception.”

(Mayor)Tony (Ferrara) said, “I want to assure customers that the plant is working just fine. America in Bloom judges took a tour of the sanitation district. They went out there and visited the plant because one of the categories we were judged in was environmental. They commented that the Cogen plant (an unmitigated disaster that cost ratepayers nearly $1,000,000 and never worked) had cut utility costs in half. They were amazed that 5 people could run that plant (while Wallace charged for an additional 28).”


Following the 2011 Grand Jury report, the three women on the Grover Beach City Council asked Mayor John Shoals to remove Bill Nicolls as the Sanitation District alternate. Shoals refused, claiming sole authority to choose his alternate on the Sanitation District board. The Council was lied to. It was the Council’s choice, not the Mayor’s, and the Council had the majority.

Shoals has to protect Wallace also……



Shoals and Guerrero /Lucey have thus far REFUSED to stop litigation with the State Water Board. They continue to support wasting more taxpayer funds perusing pointless litigation.


What were the votes in GB thinking when they re-elected this guy? Anyone associated with Wallace and Ferrara is suspect. Too bad Grover wasn’t paying attention. Peterson would have brought the Sanitation Board back to reality.


I hope this goes far enough to see what financial benefit Shoals, Nichols and Ferrera all had to “protect” their buddy Wallace. They must all be shaking in their boots right now!

“PERCEPTION? perception?”

You got to be kidding?

“Integrity” judges Caren Ray and Tony Ferrara?

The Write in Jim Hill campaign knew the guilt of Ferrara and Wallace and this was part of the Bullsh$t bag of guilt.

Just like Big Tony to declare America in Bloom the judges also! My God, why not have the Tree Guild be the judge?


Easy to picture the bobble head’s all agreeing as Ray discredits the Grand Jury report.

Ferrara citing America in Bloom judges as proof the plant was operating correctly.

Nod, nod Guthrie

Nod, nod, Costello

Only Brown dares to question.

Ray wants to become Mayor?

Guthrie wants to be re-elected?

They deserve what Ferrara and Costello got from the voters, a resounding NO.


To those who continue to support Ferrara, and believe he was unfairly unseated, it’s time to acknowledge he was greatly responsible for allowing this abuse to occur. He and Nicols protected Wallace for years. The ratepayers have paid a high price.

Now let’s hope Mr. Wallace pays.

San District residents have received a one page notice declaring the need to raise the rates.

And there is NOT ONE WORD of the MILLION DOLLAR FINE$$$$

Seems to me Wallace and Ferrara and Nichols should pay the fine.


Add Seitz to the list of those who should be required to make restitution to the district ratepayers. He too, made a fortune from screwing the public…all the while supported by Ferrara, Nichols, Shoals, Guthrie and the rest of the councils who refused to believe the evidence, turned a blind eye to the truth, and allowed the corruption to continue.

Caren Ray

Jim Guthrie

Joe Costello

Shame on you all, for many years you were all so busy riding Ferrara’s coat tails and concerning yourselves with your own political careers that you completely digregarded who you REALLY represent.



Surprised that Debbie Peterson hasn’t posted yet to take credit for all this.


LOL prof, are you saying she’s shouldn’t?

Let me ask another way…if she wasn’t living here in SLO County, and didn’t give a darn, would you be reading my comment on this subject right now?

That’s not a rhetorical question.


Here are the true heroes:

“In 2009, two employees from the sanitation district, Scott Mascolo and Devina Douglas, reported misuse of public funds and problems with the plant complying with safety and health requirements to several regulatory agencies and CalCoastNews. Douglas and Mascolo were eventually terminated leading both to file whistle-blower lawsuits.”

If those two hadn’t come longhand done what they had done, No, I would not be reading your comment right now.

Oh, and Velie, too.


Oh but she is taking credit polyprof, she is doing it in a newsletter for her campaign. She sat on that board for ONLY 1 year.

There is a AG resident who has been following this for years, and calling them out on all this BS. The resident knows so much more than Debbie, but it not one who likes the lime light.

Debbie needed something like this to help her campaign, I am sure Weds night she will act like she did it all by herself.

I am glad the truth has finally come out, and now it is up to the rate payer to put pressure on the D.A. to make those responsible pay the consequences.


“Nichols arrived at their meeting with Wallace who allegedly smirked at the state employee, according to the report. This is one of the incidents of malfeasance Knudson recommends law enforcement investigate.”



Wallace attempted to use or used his public office to financially enrich his company? An attempted bank robbery is when the thief fails to get the money. He clearly stole the money. Here we are three years later, Why? Of course If he were a government employee he would be on paid administrative leave with a fat severance payout and retirement. Again, politics as usual, no oversight. Who’s in charge????


while our DA sleeps and pursues meaningful drunk in public charges against cal poly kids


Finally, the truth comes out. No denying now, Mr. Wallace, Mr. Nichols, Mr. Ferrara and Mr. Seitz..

In my opinion, this should not be prosecuted locally, but the State Attorney should be involved.


Dan Dow is too busy promoting himself to prosecute this.


Your are correct, however it is beyond crucial to keep Wallace away from whoever prosecutes him. Unmentioned in the report but one of Wallace’s favorite questions to his enemies is “whats it gonna take to make your happy” of course that being payola to turn a blind eye to his corruption.



Whoever has hear those words from Mr. Wallace; must speak up NOW!


Snoid, it seems like you’ve had personal dealings with John Wallace in the past, as you know many of his traits. You’re correct, he does use that phrase you’ve stated: “What’s it going to take to make you happy?” He’s used to buying people off, he’s done it for years – it’s second nature to him, and he has the money to do it. He makes it clear that he can make people’s lives a living hell because of his position/ranking in SLO and the people he knows and the money he has to hire the right help/defense.

I’m sure he’s already got a plan in his head to try to get out of this mess. I hope folks will see right through his bullshit this time, and are able to look at the facts (if they haven’t been destroyed) and realize he’s been robbing folks for decades. It would be so wonderful to have him either locked up or get him to move entirely out of SLO…..this town would be a much better place (in my opinion)!

Time to track Mr. Ferrara down in Palm Springs hanging in his Man Cave and get him to court!!

Another reason Mr. Ferrara was voted out by the majority of AG residents!


You should be yelling thief at the top of your lungs.


Why arent you calling for the obvious? (an indictment to you) to much risk?


Dan Dow is to much of a putz to prosecute this. This is a damming report done by a high caliber forensic accounting firm. No brainer for a grand jury indictment.

Hang em high.


I agree. Although a very egregious case, it would pose to much risk to Dan Dow’s career and require more intelligence and work than he is capable of.


You are so obviously a shill for Adam Hill/CC/BOS it is pathetic. Stupid call you made on Dave’s show to accuse Dan of lying about paying the legal bill out of his own pocket. You were a coward to wait until Dan was off the air.


I love that Dan Dow made that claim on live recorded radio. You know how I know Dan is lying? Because if i were right, I would never pay that bill personally – even if it meant my job. That is character and integrity. The spineless DA cant even stand up for what he believes in.


On the contrary coward, Dan exhibited CHARACTER and INTEGRITY by paying a bill to people who were owed. Trust me, the 4 cowards on the BOS and CC haven’t heard the last of this.

Mr. Holly

There is no criminal grand jury in SLO. With everything that goes on here there probably should be. The political gang that runs thruout San Luis Obispo will not allow for any controversial to occur. I don’t think that you would ever see any indictment with this case. Heck, the DA’s office didn’t even look at Kelly Gearhart so why would they look at a case that they would consider frivolous?


The DA is too busy making a name for himself rather than take on a real criminal case.


You need to get your head out of your you know what and quit crying that Dan beat your guy Covello. If Dan was a “putz”, why would he be standing up to corrupt county government(BOS and CC)? You aren’t very bright.

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